Industry overview
The information presented in this section is derived from the Euromonitor Report, as well
as various official or publicly available publications and such information may not be consistent
with other information compiled within or outside the PRC. We believe that the sources of this
information are appropriate sources for such information and have taken reasonable care in
extracting and reproducing such information. We have no reason to believe that such information
is false or misleading or that any fact has been omitted that would render such information false
or misleading. The information has not been independently verified by the Company and the
Sole Sponsor or any other party involved in the Share Offer and no representation is given as
to its accuracy. We make no representation as to the completeness, accuracy, or fairness of such
information, and accordingly, such information should not be unduly relied upon.
ABOUT EUROMONITOR
We commissioned Euromonitor, an independent third party to prepare a report on Chinese
Medicine Products (“Euromonitor Report”) at a total fee of US$171,151. Headquartered in London,
United Kingdom, with more than 800 analysts, Euromonitor has in-depth research experience and
market knowledge in 80 countries worldwide researching and tracking FMCG, industrial, service
and B2B markets and has been actively researching the China market in the last 15 years. Till date,
Euromonitor has completed more than 250 custom research studies for China in station industries.
This study has been championed by the Euromonitor’s Singapore and Shanghai regional offices.
In preparing the report, Euromonitor collected and reviewed publicly available data including
research reports, press release, government derived statistics, industry association publications, public
filings and annual report of listed manufacturers and distributors of Chinese Medicine Products. In
addition, primary research was conducted that included personal interviews with industry experts and
representatives of manufacturers and distributors of Chinese Medicine Products. Euromonitor used
multiple secondary and primary sources to validate all data and information collected with no reliance
on any single-source. Furthermore, a test of each respondent’s information and views against those of
others is applied to ensure reliability and to eliminate bias from these sources. To ensure forecasting
accuracy, Euromonitor adopted its standard practice of quantitative and qualitative analyses’ of the
market size, growth trends, etc., on the basis of a comprehensive and in-depth review of the market’s
historical development; Data was cross-checked with established government/industry figures and/
or trade interviews, as well as statistical tools (e.g.: regression analysis, time-series analysis, data
modelling) where possible.
DEFINITION AND CLASSIFICATION OF CHINESE MEDICINE PRODUCTS
Chinese Medicine Products, also known as traditional Chinese medicine are products that have
a long tradition of use in China, a long established reputation in China, and are considered alternative
remedies to standard healthcare products in China. Chinese Medicine Products are perceived to have
certain elements that separate it from western medicine, and make it an interesting alternative. For
example, users of Chinese medicine treatment or products believe that Western medicine focuses
on eliminating symptoms, while Chinese medicine focuses on curing the root cause of the illness.
- 59 -
Industry overview
Western medicine treatment or products are usually more expensive than Chinese medicine treatment
or products, making Chinese medicine a cost-effective alternative. Chinese Medicine Products are
typically made with natural herbs and animals, which are considered by users of traditional Chinese
medicines to be easier for the body to take than Western medicine products. Chinese Medicine
Products include Chinese Medicines (“中成藥”), Chinese herbs (“中藥材及飲片”) and Healthcare
Products (“中式保健品”).
Chinese Medicines
Chinese Medicines are medicines developed by using the raw materials of traditional Chinese
Medicines. They have been investigated, observed in studies and through clinical experiences, have
received general approval as being safe for consumption. Chinese Medicines can take a variety of
forms, such as: capsules, pellets, powders, granules, pastes, and pills.
Chinese herbs
Chinese herbs are traditional Chinese medicines which are processed according to traditional
Chinese medicine theory, such as: steaming, boiling, frying, chopping, slicing, dehairing, etc. They
generally need to be cooked by consumers before consumption.
Healthcare Products
Healthcare Products are healthcare products which use raw traditional Chinese Medicine
ingredients or traditional Chinese Medicine extracts as its functional ingredients. Healthcare Products
are functional foods which have health benefits beyond what a normal healthy diet can provide.
Functions provided by healthcare products include: immune system maintenance, improving energy
and stamina, controlling weight, etc.
CHINESE MEDICINE INDUSTRY IN CHINA
According to the Euromonitor report, as at the end of 2011, there were over 2,300 manufacturers
engaged in producing Chinese Medicine Products in China.
According to the Euromonitor report, the Chinese medicine industry had been growing at a rapid
pace over the past few years. By 2011, the value of total industrial output of Chinese Medicines and
Chinese herbs reached approximately RMB417.9 billion, representing approximately 31.7% growth
over 2010. The contribution of Chinese Medicines and Chinese herbs together to the China’s gross
domestic product (“GDP”) had also been increasing over the past few years, and reached approximately
- 60 -
Industry overview
0.9% in 2011. The growth is driven by both the growing domestic and international demand. The chart
below shows the overall industry output of Chinese Medicines and Chinese herbs in China according
to National Development and Reform Commission of China (中華人民共和國國家發展和改革委員
會) provided by the Euromonitor report:
RMB billion
CAGR
(2007-2011)
500.0
400.0
24.7%
300.0
200.0
24.0%
100.0
0.0
2007
2008
2009
Chinese Medicines
2010
2011
Chinese herbs
Source: Euromonitor Report
As shown above, the Chinese medicine industry has experienced stable growth from 2007 to
2011, and it is expected that the industry will continue to grow for the foreseeable future. According
to estimates by industry exports from the China Association of Traditional Chinese Medicine (“中
國中藥協會”), the industry output of Chinese Medicines, Chinese herbs and Healthcare Product is
likely to exceed RMB1,000 billion by 2015. We believe such growth has been, and will continue to
be, driven by the improving recognition of the Chinese medicine industry as a result the following
key factors:
•
Improving regulation and supervision of the Chinese medicine industry
The improving Chinese medicine industry standards in China contributed to the increasing
confidence and acceptance of Chinese medicine treatment and products, and as a result, an
enlarged customer base. Counterfeit medicines and poor-quality medicines in the market have
long caused consumers to refrain from adopting Chinese medicine treatment and products.
More stringent regulation and supervision of quality control was imposed by the Chinese
government in recent years in an attempt to solve the problem. Relevant regulations included
“Drug Administration Law of the PRC”, “Regulations of the PRC on Traditional Chinese
Medicine”, “Proposal on Implementation of National Essential Drug System” and “Notice on
Strengthening Supervision and Administration of Chinese herbs”.
•
Modernisation and globalisation of the Chinese medicine industry
The modernisation and globalisation of the Chinese medicine industry has been the
prominent trends of recent industry development. Modernization of the Chinese medicine industry
is primarily reflected in that more modern scientific technologies are applied to develop and
produce Chinese Medicine Products that are safe, effective, viable for bulk production, easy for
- 61 -
Industry overview
intake, with more persistent result. More stringent regulation and supervision of quality control
imposed on the Chinese medicine industry in recent years contributed to the modernization of
Chinese Medicine Products. We believe that the intense competition in low value-added Chinese
Medicine Products market such as Chinese herbs drove some scaled manufacturers to invest into
the research and development of Chinese Medicines and Healthcare Products to enhance their
competitiveness. Well-known companies include the TRT Group, Player 4 and others.
To expand into overseas markets, more Chinese Medicine Products manufacturers register
their products according to relevant regulations in overseas countries and regions where
applicable.
Since the 12th Five-Year Plan has highlighted the importance of expanding the export of
Chinese Medicine Products, it is anticipated that modernization and globalization of Chinese
Medicine Products will continue in the future.
•
Government support for the development of the Chinese medicine industry
The Chinese government support is another primary driver of the Chinese medicine industry.
The Chinese government assists the development of the industry through direct investments
and creating favorable policies for the industry. In April of 2009, the government proposed an
RMB850 billion three-year spending plan to improve the healthcare infrastructure and expand
insurance coverage in China. These types of investments into the healthcare sector gave a
direct boost to the growth of the entire healthcare industry, of which the Chinese medicine
industry forms an important part. The Chinese government also reinforced a series of Chinese
medicine industry favoring policies, some of which provided support for the construction of
Chinese medicine hospitals, which increased the number of Chinese medicine prescriptions and
consequently contributed to the growth of demand of Chinese Medicine Products. In early 2012,
Proposal on Promoting the Development of Traditional Chinese Medicine Trade in Services
was established and issued by 14 ministries of China which contained a package of measures,
including financial investment, taxation support, financial subsidy and measures to improve
international recognition, to be introduced to support the development of the Chinese medicine
industry. We believe that with the implementation of such favoring and promoting policies, the
Chinese medicine industry will continue to grow in the foreseeable future.
- 62 -
Industry overview
EXPORTATION OF CHINESE MEDICINE PRODUCTS
According to the Euromonitor report, the export of Chinese Medicine Products had been steadily
growing over the years and amounted to approximately US$1,202.2 million in 2011, representing a
growth of approximately 27.9% from 2010, and a CAGR of approximately 13.0% from 2007.
Benefitting from the supportive government policies and regulations, active overseas expansion
of domestic manufacturers of Chinese Medicine Products and the increasing demand from the overseas
markets with improved recognition of Chinese Medicine Products, the export of Chinese Medicine
Products from China is expected to grow further in the foreseeable future and reach approximately
US$2,425.5 million in 2016, representing a CAGR of approximately 15.1% from 2011.
The chart below shows estimates by the China Chamber of Commerce for Import & Export
of Medicine & Health Products for the exportation of Chinese Medicine Products during the period
indicated:
US$ million
CAGR
3000.0
CAGR
(2007-2011) (2011-2016)
2500.0
Chinese
Medicines
10.6%
10.0%
2000.0
1500.0
Chinese herbs
12.5%
15.0%
Healthcare
Products
18.3%
20.0%
Overall
13.0%
15.1%
1000.0
500.0
0.0
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
Chinese Medicines
Healthcare Product
Chinese herb
Source: China Chamber of Commerce for Import and Export of Medicine and Health Products
Chinese Medicines
Although accounting for only approximately 19.1% of the total export value of Chinese Medicine
Products in 2011, we believe Chinese Medicines are an important indicator of the globalization of
Chinese Medicine Product because it is more difficult to register and promote compared with Chinese
herbs and Healthcare Products in societies with different cultural background due to its pharmaceutical
nature. According to the Euromonitor report, the export of Chinese Medicines reached approximately
US$229.8 million in 2011, representing a growth of approximately 18.6% from 2010 and a CAGR
of approximately 10.6% from 2007. It is estimated that the export value of Chinese Medicines will
reach approximately US$370.1 million in 2016, representing a CAGR of approximately 10.0% from
2011.
- 63 -
Industry overview
Chinese herbs
Chinese herb constitutes the largest part of export of Chinese Medicine Products from China, it
accounted for approximately 63.8% of the total export value of Chinese Medicine Products. According
to the Euromonitor report, the export of Chinese herbs reached approximately US$766.9 million in
2011, representing a growth of approximately 17.8% from 2010 and a CAGR of approximately 12.5%
from 2007. The growth of Chinese herbs was mainly attributable to the increasing product selling sale
prices. In 2011, the average price of exported Chinese herbs increased by approximately 33.6%, and
for specific Chinese herb products, for example, ginseng (“人參”), poria (“茯苓”), pinellia ternate
(“半夏”), the price increase was over 80%. It is estimated that the export value of Chinese herbs will
reach approximately US$1,542.5 million, representing a CAGR of approximately 15.0% from 2011.
Healthcare Products
Healthcare Products realised the fastest export value growth during 2007 to 2011. According to
Euromonitor report, the export of Healthcare Products reached US$206.1 million in 2011, accounting
for approximately 17.1% of the total export value of Chinese medicine products and representing
a growth of approximately 115.0% from 2010 and a CAGR of approximately 18.3% from 2007. It
is estimated that the export value of Healthcare Products will more than double the export value of
2011 and reach approximately US$512.9 million, representing a CAGR of approximately 20.0% from
2012.
Principle export country destinations
Due to increased awareness of Chinese Medicine Products around the world, the export market has
been prosperous and continues to grow, especially in Asia where the largest Chinese population lives.
The chart below shows the export value of Chinese Medicine Products to top 20 export destinations
(country/region) in terms of export value in 2011:
Proportional export value of Chinese Medicine
Products in 2011 – by region
2%
1%
9% 1%
17%
ASEAN countries
Other countries in Asia
11%
Africa
European Union
2%
57%
Other countries in Europe
Latin America
North America
Oceania
Source: Euromonitor report
- 64 -
Industry overview
Proportional export value of Chinese Medicine Products in 2011
– top 20 country
Indonesia 1%
United Kingdom 1%
Netherlands 1%
Italy 1%
Thai 1%
France 2%
Canada 2%
Australia 1%
Chile 1%
Spain 1%
Russia 1%
Hong Kong (China) 27%
Malaysia 3%
Singapore 3%
Germany 3%
Taiwan (China) 5%
South Korea 8%
Japan 20%
United States 8%
Vietnam 9%
Source: Euromonitor report
As shown in the charts above, Asia was the top exportation destination of Chinese Medicine
Products from China in terms of export value, accounting for approximately 73.5% of total export
value of Chinese Medicine Products of China in 2011. Within the top 20 export destinations (country/
region) in terms of export value in 2011, together contributing over 90% of total export value in 2011,
9 were Asian countries/regions, namely, Hong Kong, Japan, Vietnam, South Korea, Taiwan, Singapore,
Malaysia, Thailand, and Indonesia. Hong Kong, Japan and Vietnam were the three countries/regions
which recorded highest export value, and together accounted for approximately 51.8% of the total
export.
Manufacturers of Chinese Medicine Products and their exportation business model
In general, three models are adopted by manufacturers of Chinese Medicine Products in China
to export their products: via trading company or overseas agencies, via traditional corporation with
local partners and the business model of TRT Group which is to promote business through setting
up overseas “Tong Ren Tang” branded retail stores. If via trading company, the manufacturers do
not need to engage in the communication with other overseas distributors. The trading company or
overseas agencies are responsible for all exportation related affairs and the on sale in the overseas
markets. Using this model, minimum personnel, cost, and knowledge of overseas market is required
- 65 -
Industry overview
as the manufacturers do not need their own exportation department and do not need to explore or
maintain any overseas distribution network. If via traditional cooperation with local partners, the
manufacturers will collaborate directly with selected local partners who are equipped with wide
distribution network in desired export destination through establishing overseas branches or joint
ventures. The manufacturers can leverage on the overseas partners for profound knowledge of local
markets, and the established local distribution network, but compared with via trading company, this
model require more effort and resources from the manufacturers. There are a number of manufacturers
adopting this model. The last model, according to the Euromonitor report, was firstly and only adopted
by TRT Group, can be regarded as an evolved form of the traditional cooperation with local partners.
Based on traditional cooperation model, TRT Group did not only rely on the distribution network of
the local partners, it made more effort in setting up its “Tong Ren Tang” branded stores to provide
Chinese Medicine Products and Chinese medicine healthcare services. Compared with the traditional
cooperation model, the model adopted by the TRT Group can help to achieve better brand recognition
and product promotion. Although more human and financial resources is required under this model,
this model is believed to have long term benefits.
Leading exporters of Chinese Medicine Products
According to the Euromonitor report, in 2011, the export value of the top ten exporters
(including trading companies and manufacturers) of Chinese Medicine Products was approximately
US$314.8 million, with a total market share of approximately 26.2% of total export value. The table
below sets forth the top five exporting companies of Chinese Medicine Products and their respective
export value in 2011:
% of total
Name of the Company
US$ million export value
Player 1
Player 2
Player 3
TRT Ltd.
Player 4
Total
Source: China Chamber of Commerce for Import & Export of Medicine & Health Products
- 66 -
85.6
47.8
37.2
36.9
23.4
7.1%
4.0%
3.1%
3.1%
1.9%
230.9
19.2%
Industry overview
The TRT Group was the largest Chinese Medicines exporter in 2011 according to the China
Chamber of Commerce for Import & Export of Medicine & Health Products. Among the top five
exporting companies of Chinese Medicine Products in 2011, the top three exporting companies
primarily focused on the exportation of Chinese herbs and TRT Ltd. and Player 4 primarily focused
on exportation of Chinese Medicines. The table below lists out the top five exporting companies of
Chinese Medicines and their respective relevant export value in 2011:
% of total
Name of the CompanyUS$ million export value
TRT Ltd.
Player 4
TRT Technologies
Player 5
Player 6
36.6
23.4
7.5
7.2
6.5
15.9%
10.2%
3.3%
3.1%
2.8%
Total
81.2
35.3%
Source: China Chamber of Commerce for Import & Export of Medicine & Health Products
As shown in the above table, TRT Ltd. was the top exporting company, and TRT Technologies
was the third exporting company, of Chinese Medicines in China in terms of export value in 2011,
and together contributed to approximately 19.2% of total export value of Chinese Medicines.
CHINESE MEDICINE INDUSTRY IN HONG KONG
The Chinese Medicine Division (CMD) under the Department of Health and Chinese Medicine
Council of Hong Kong (CMCHK) were designated to regulate, monitor and promote the use of Chinese
Medicine in Hong Kong. CMD and CMCHK has also taken on measures to support the long-term
development of Chinese medicines in Hong Kong.
Popular consumable Chinese Medicine Products in Hong Kong includes raw Birdnest, Lingzhi,
Cordyceps, E-Jiao while topical Chinese Medicine Products considered include oil ointments. According
to the Chinese Medicine Council of Hong Kong, there are 293 manufactures of proprietary Chinese
medicines, 855 wholesalers of Chinese herbal medicine and 4,468 licensed retailers for Chinese Herbal
medicine in Hong Kong in 2012.
- 67 -
Industry overview
The chart below shows the historical and estimated retail value sales (“RVS”) of Chinese
Medicine Products in Hong Kong during the period indicated:
HK$ million
18,000
CAGR
15,000
13,087
10,865 11,951
12,000
9,000
6,000
6,387 6,994
7,707 8,755
14,265 15,406 (2007-2011)
11.3%
9,806
CAGR
(2012-2016)
9.1%
3,000
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Chinese Medicine Products
Source: Euromonitor Report
Key Drivers to the growth of Chinese Medicine Products in Hong Kong
Government support on Chinese Medicine Products in Hong Kong
The Chinese Medicine Division (CMD) under the Department of Health and Chinese Medicine
Council of Hong Kong (CMCHK) are designated to regulate, monitor and promote the use of Chinese
Medicine in Hong Kong. CMD and CMCHK have also taken on measures to support the long-term
development of Chinese medicines in Hong Kong since 1999. Such measures include creation of a
network of institutions of high standing for research and development work; development of new
drugs for enhancement of the competitiveness of the Chinese medicine industry; and setting up of
research funds for support of research in Chinese medicine.
Changing consumer’s perceptions towards Chinese Medicine Products
Since 2003, the government has implemented a registration system for proprietary Chinese
medicine. Manufacturers and importers are required to obtain license from the Chinese Medicine
Board of the Chinese Medicine Council before any Chinese medicine products could be imported or
sold in the market. The approval of license is given to products that can pass certain safety test and
efficacy proof. At present, all Chinese Medicine Products sold in Hong Kong are required to display
the license number on the packaging. The regulation and standardization of Chinese Medicine Products
has greatly enhanced consumers’ confidence in Chinese Medicine Products. At the same time, the
increased number of professional Chinese Medicine Practitioners in Hong Kong led to more openings
of modern Chinese Medicine clinics, where not only elder but younger consumers are targeted. The
Chinese Medicine Products markets continued to experience positive growth and development as
consumers are increasingly aware of the various healthcare benefits related to Chinese Medicine
Products in Hong Kong.
- 68 -
Industry overview
Increasing availability of Chinese Medicine Products in Hong Kong
The increasing availability of Chinese Medicine Products in retail channels has also contributed
to its growth. The three major healthcare retailing chains in Hong Kong are very aggressive in building
themselves as reliable Chinese Medicine Products retailers. During the historical period, the expansion
of these retailers expanded aggressively in the Hong Kong territories with a strong growth in their
outlet counts.
Although these healthcare and beauty specialist retailers carry mainstream Chinese Medicine
Products brands (e.g. Brand 3, Beijing Tongren Tang, Brand 1 and Brand 2), the need for them to
differentiate their Chinese Medicine Products offerings from competition has caused them to inject
new or exclusive Chinese Medicine Products brands and products into their existing product range.
This has caused a proliferation of Chinese Medicine Products brands and products in the Hong Kong
market. At the same time, retailer chains are trying to differentiate from each other by selling exclusive
brands or products that competitors do not carry. The outcome of such competition will make more
Chinese Medicine Products brands available in the market, while retailers and leading brands will be
more aggressive in advertising and in-store promotions.
Demand for Chinese Healthcare Products
The rising cost of medication and the negative health effects of a hectic work life and sedentary
lifestyles have propelled a greater need for supplements that enhances general health and alleviates
specific medical conditions. With more Hong Kong consumers taking a more active role to sift out
products over-the-counter, to help enhance their general health and other ailments, Chinese healthcare
products are believe to continue to form the foundation and key growth driver of demand for Chinese
Medicine Products in Hong Kong.
Influx of mainland Chinese consumers
As consumers from Mainland China continue to enter Hong Kong in high numbers, they are
expected to support and boost the sales of Chinese Medicine Products in the Hong Kong market. The
Chinese government has also reduced the restrictions on mainland Chinese tourists visiting Hong
Kong.
The implementation of this policy will encourage the middle class Mainland China consumers
to come to Hong Kong, leading to the increase in demand for high value Chinese herbs and Hong
Kong branded Chinese Medicine Products. According to the Euromonitor Report, mainland Chinese
shoppers perceive Chinese Medicine Products sold in Hong Kong, Chinese herbs, in particular to
have better qualities comparing to its import origin, mainland China. Premium Chinese herbs are
often concentrated in Hong Kong market because growers of Chinese herbs in mainland China often
pick out the top graded Chinese herbs for export in order to obtain a higher price comparing to local
distribution. Moreover, the rising concern over product quality and safety issues will prompt more
consumers from mainland China to purchase from Hong Kong, where Chinese Medicine Products are
regulated to much higher safety standards. Notably, purchases made by mainland Chinese consumers
are often in large volume as the cost of visiting Hong Kong is considerably high.
- 69 -
Industry overview
Tightening regulations curb future growth
A business or operating license is required of all players throughout the supply chain of Chinese
Medicine Products in Hong Kong; manufacturers, importers, wholesalers, and retailers are required to
apply for their respective license from CMCHK before involving in the Chinese Medicine Products
business. Besides registering as a licensed business entity, Chinese Medicine Products itself will face
registration requirements as well. Approval of one product from CMCHK takes around one to two
years with a minimum cost of HKD 50,000. The high cost and long lead time for Chinese Medicine
Products registration has limited the expansion of local manufacturers, many of which are small to
medium size companies, inherited from previous generations of families.
According to the Euromonitor Report, Hong Kong and the PRC (one of the important importing
country for Chinese Medicine Products) have different quality standard for the production of Chinese
Medicine Products. The higher quality standards in Hong Kong have cut many China Chinese Medicine
Products out from the Hong Kong market. Currently, there are 36 types of Chinese herbal medicines
that are not allowed for imports into Hong Kong. Products containing these herbs will be forbidden
from entering the Hong Kong market.
Competitive landscape in Chinese Medicine Products in Hong Kong
According to the Euromonitor Report, the Chinese Medicine Products market in Hong Kong
is fragmented due to the existence of numerous imported and local brands as well as non-branded
products. Within the Chinese Medicine Products market, Chinese herbs are mainly by unpackaged and
non-branded products, which are often sold in loose form through traditional Chinese medicines halls
and modern health care chains. Although branded labels such as Tong Ren Tang, Brand 1 and Brand 2
do sell branded and packaged Chinese herbs, these are believed to be not making up a major component
of the Chinese herbs market. Competition of Chinese Medicine Products is largely restricted in the
realm of Chinese healthcare products and Chinese Medicines, where a mixture of local and imported
brands is presented. Heritage brands such as Tong Ren Tang, Brand 1 and Brand 2 are ahead of the
competition due to their long presence and premium brand image. Brand 3 and Brand 4, with strong
presence in Chinese healthcare products also accounted for a sizable market share.
The table below sets forth the RVS of top five Chinese Medicine Products brands in Hong
Kong in 2011:
Market
Brand
HK$ millionShare
Tong Ren Tang
Brand 1
Brand 2
Brand 3
Brand 4
Others
Total
607.5
595.5
407.8
449.2
208.1
7,537.8
9,805.9
- 70 -
6.2%
6.0%
4.2%
4.6%
2.1%
76.9%
100.0%
Industry overview
Angong Niuhuang Pills in Hong Kong
Local consumer base for Angong Niuhuang Pill increased on the back of greater awareness and
better recognition of the efficacy of Angong Niuhuang Pills. As Angong Niuhuang Pills are recognised
mainly for the treatment of illness such as acute cerebrovascular diseases, including pyrexia with
delirium and stroke. In recent years, Angong Niuhuang Pills are more widely available in Hong Kong,
as an increasing number of retail outlets started to sell the product. The chart below shows the historical
and estimated RVS of Angong Niuhuang Pills in Hong Kong during the period indicated:
HK$ million
2,000
1,662
1,600
1,221
1,200
831
800
400
0
172
190
218
2007
2008
2009
294
2010
1,445
1,018
CAGR
(2007-2011)
31.6%
516
2011
2012
2013
CAGR
(2012-2016)
18.9%
2014
2015
2016
Angong Niuhuang Pills
Source: Euromonitor Report
The table below sets forth the RVS of Angong Niuhuang Pills in Hong Kong in 2011:
Brand
HK$ million
Market share
Beijing Tong Ren Tang
Brand 5
Others
486.0
19.4
10.3
94.2%
3.8%
2.0%
Total
515.7
100.0%
Source: Euromonitor Report
According to Euromonitor Report, Angong Niuhuang Pills market in Hong Kong is dominated
by TRT Group. Local brand Brand 5 and other small players made up the remaining of the market.
The factors of success for TRT Group as a market leader includes its rich heritage in the production
of Angong Niuhuang Pills as well as its ability to benchmark itself on a higher pricing because of the
more exquisite ingredients used. The recommended retail price of Angong Niuhuang Pills from Tong
Ren Tang was HK$490 in 2011, while the retail price of Brand 5 Niuhuang pills was on HK$108 in
the same year.
- 71 -
Industry overview
Key drivers to the growth of Angong Niuhuang Pills in Hong Kong
Greater recognition of Angong Niuhuang Pills among local consumers
Besides easy access of the product, rising retail presence of Angong Niuhuang Pills has helped
to attract and educate the Hong Kong consumers about the benefits of Angong Niuhuang Pills, whom
previously were not aware of. Gradually, the consumer base of Angong Niuhuang Pills has grown
amongst the local consumers. Demand for Angong Niuhuang Pills will continue to grow as a result
of increasingly ageing population.
Shopper from mainland China
Tourists from mainland China have injected growth to the sales of Angong Niuhuang Pills. With
the release of the Individual Visit Scheme (IVS) in mainland China in 2003, especially in second-tier
cities outside of the Guangdong provinces, the number of arrivals from China increased constantly
from 2007 to 2011. Retail price of Angong Niuhuang Pills in Hong Kong is relatively lower than
its retail price in the PRC driving the mainland China consumers to buy Angong Niuhuang Pills in
Hong Kong.
Increase in recommended retail price of Angong Niuhuang Pills in the PRC
Growing with the recommended retail price of Angong Niuhuang Pill’s largest brand in the
market, the price of a pill has increased from HK$435 at the end of the year 2010 to HK$490 at the
end of year 2011. Prices was further increased from HK$490 ( at the end of 2011 ) to HK$670 by
the end of year 2012. This has also caused a growth in the retail sales value for the product market.
Despite the increased price of Angong Niuhuang Pill, an appreciation of the Renminbi (RMB) against
the Hong Kong dollar (HK$) still made it cheaper to buy Angong Niuhuang Pills in Hong Kong.
Wider distribution channels for Angong Niuhuang Pill in Hong Kong
According to the Euromonitor Report, key manufacturers of Angong Niuhuang Pills in Hong
Kong expressed interest to grow their retail presence in Hong Kong through the increase in their
number of specialty outlet stores. These retail outlets are expected to serve as an effective marketing
tool in the promotion of sales of Angong Niuhuang Pills, where the presence of knowledgeable inhouse sales consultants will aid in the education of consumers about the benefits and efficacy of
Angong Niuhang Pills. The growth however may be dampened by consumers’ perception of the pill
as a ‘first aid’ medicine for patients with Cerebal Vascular Accident (CVA) and the sales frequency
of Angong Niuhuang Pills may thus be lower than other healthcare products.
Ganoderma lucidum products in Hong Kong
In Hong Kong, ganoderma lucidum has been widely accepted by the market as one of the most
effective and common health supplement that can provide nourishment as well as support for the
immune system. Although the product is much preferred by the elderly population, owing to its antiaging property, more of the younger population is now taking the product because of the convenient
- 72 -
Industry overview
formats that are introduced for ganoderma lucidum, such as capsules, powder etc. An increase in
health issues resulting from a hectic lifestyle and unbalanced diet has also driven more consumers to
seek for health supplement such as ganoderma lucidum which can replenish and nourish one’s body
condition. The chart below sets forth the historical and estimated RVS of ganoderma lucidum products
in Hong Kong for the period indicated:
HKD mn
2,000
1,500
1,000
939
988
2007
2008
1,116
1,266
1,332
1,391
1,441
1,494
1,552
1,613
CAGR
(2007-2011)
9.1%
500
0
CAGR
(2012-2016)
3.8%
2009
2010
2011
2012
2013
2014
2015
2016
Ganoderma lucidum products
Source: Euromonitor Report
Ganoderma lucidum products are perceived to be supplement Healthcare Products and local
consumers were the key customers to ganoderma products in Hong Kong. Accordingly, its growth
from 2007 to 2008 was significantly lower than that of the entire historical period primarily due to
the global financial crisis in 2008.
Active promotions by local players like Brand 3 and Brand 1 are pertinent to sustain growth
as well as educating the younger consumers on the benefits of the product. As beauty and healthcare
specialists continues to actively source and introduce exclusive brands and products into the market,
it is anticipated that the ganoderma lucidum market will still be experiencing good growth over the
forecast period. The market is postulated to reach a stage of maturity with forecast RVS CAGR of
3.9%.
CHINESE MEDICINE PRODUCTS INDUSTRY IN APAC
According to the Euromonitor Report, the APAC region imported a significant portion of its
Chinese Medicine Products from the PRC, with the rest coming from other Asian countries such as
Japan, South Korea, Taiwan, Malaysia and Hong Kong, resulting in a highly fragmented market with
the presence of various brands. Ganoderma lucidum products, bird’s nest and ginseng are commonly
- 73 -
Industry overview
consumed in the APAC region. The chart below shows the historical and estimated RVS of Chinese
Medicine Products in APAC during the period indicated:
USD mn
2,000
1,591
1,600
1,067
1,200
800
574
645
2007
2008
764
1,241
1,767
1,962
1,416
915
CAGR
(2007-2011)
16.8%
400
0
2009
2010
CAGR
(2012-2016)
12.1%
2011
2012
2013
2014
2015
2016
Chinese Medicine Products
Source: Euromonitor Report
Severe drought conditions in 2008 and 2010 in the PRC greatly impacted the supply of herbs
harvested in these regions, in particular the Southwestern provinces of Yunnan, Guizhou and Gansu,
causing the prices of Chinese herbs to rise.
Growing health consciousness and awareness about alternative medicine will see Chinese
Healthcare Products like ganoderma lucidum-, bird’s nest- and ginseng- related supplements, famed
for their nutritional benefits, gaining popularity among consumers in the APAC region. Chinese
Medicine derived from natural ingredients and raw herbs are also expected to gain appeal for consumers
seeking natural remedies. Changing consumer perceptions towards TCM will also drive the growth
in the Chinese Medicine Products market during the forecast period. According to the Euromonitor
Report, sales of Chinese Medicine Products are no longer restricted to the Chinese population. This
phenomenon is expected to continue into the forecast period and RVS of Chinese Medicine Products
are expected to accelerate.
Key drivers to growth of Chinese Medicine Products in APAC
Increased recognition for TCM
Western medicine has been generally recognised and accepted as the main form of healthcare in
the APAC region, while TCM has been considered as a complementary medicine. Medical certificates
issued by TCM practitioners were not widely recognised by employers in APAC and TCM’s acceptance
was subjected to private negotiations between the employers and employees.
With various programmes offered by local TCM institutes and recognition by the local health
departments, there is an increase in the legitimacy of TCM physicians in the eyes of consumers and
helps to increase public recognition and acceptance of both TCM and Chinese Medicine Products,
accordingly, Chinese herbs and Chinese Medicine will gain public recognition. Chinese herbs are an
integral portion of any TCM prescription and, as greater numbers of consumers turn towards TCM,
practitioners will increase the demand for Chinese herbs.
- 74 -
Industry overview
Increase in demand of natural treatment such as TCM
A wider consumer base for TCM will also propel the Chinese Medicine Products market as
interest in natural remedies has been growing and TCM, which takes a holistic approach in treating
the body through the use of natural herbs and ingredients, has been gaining attention even among
non-Chinese consumers in the APAC region.
Government sector plays a vital role in driving the industry
The Chinese Medicine Industry is regulated and government of each country plays a vital role
in driving the industry. Although there are challenges for the industry players in some countries as
its government is tightening and enhancing its regulations and registration requirements for drug
manufacturers or retailors, in general, the governments within the APAC region are encouraging a
safe Chinese Medicine Products consumption environment by recognising the TCM practices.
Increase in demand for Bird’s nest
Demand for bird’s nest has been driven largely by the growing trend of maintaining a youthful
appearance and increasing health consciousness among consumers in the APAC region. Increasing
marketing by bird’s nest manufacturers touting the nutritional properties of bird’s nest and its antiageing effects have led to the significantly growth in RVS of bird’s nest over the historical period as
consumers sought out bird’s nest as the preferred health supplement. Other than marketing its antiageing benefits, bird’s nest manufacturers have also introduced (i) various formats and convenient
packaging to drive demand for the product; and (ii) various flavours and recipes for their bird’s nest
products to stimulate demand among younger consumers and respond to growing health consciousness
among consumers.
Increase in the price of Chinese herbs
Rising international demand for Chinese herbs has also led to price hikes in the Chinese Medicine
Products. According to the Euromonitor Report, domestic demand in the PRC rose over the historical
period due to growing affluence among the mainland Chinese population, leading these increasingly
health-conscious consumers with higher disposable income to buy more Chinese herbs and other
forms of Chinese Medicine Products and supplements to boost and maintain their health. International
demand for raw Chinese herbs has also increased in the face of public health scares. In 2009, the
H1N1 epidemic sparked a surge in demand for Chinese herbs as traditional recipes were touted to be
effective prevention and cures for the flu. In addition, pharmaceutical companies developed vaccines
from the medicinal properties of Chinese herbs, leading to price hikes in Chinese herbs.
Competitive landscape in APAC
Companies having a big edge over other players due to their substantial research and
development and marketing funds in introducing an extensive range of products. In general, the bird’s
nest manufacturers dominated the Chinese Medicine Products industry in APAC. According to the
Euromonitor Report, the market is expected to gear towards further market consolidation.
- 75 -
Industry overview
OVERSEAS LEADING CHINESE MEDICINE RETAILERS
Considering the different operating models especially that no other Chinese medicine players
in China have set up a similar overseas retail business platform as that of the Group, we believe there
is no direct competitor to the Group among domestic players as the Group is the only supplier of
Angong Niuhuang Pills comprising of natural musk in Hong Kong. There are, however, several overseas
players based in Singapore and Hong Kong, which adopt a similar business model and operate retail
store chains of Chinese Medicine Products in overseas countries, which we regard as competitors of
the Group. According to the Euromonitor report, the leading global retailers of Chinese Medicine
Products include the Group, Brand 1, Brand 2 and Brand 6. The Group operates the top retail store
chain of Chinese Medicine Products in overseas market in terms of geographic coverage among all the
top global retailers of Chinese Medicine Products. The table below sets out the geographic coverage
of the retail store chains of the leading global retailers of Chinese Medicine Products in 2011:
Name of the Company Headquarter
Geographic coverage of the retail store chain
(excluding Mainland China)
The Group
Hong Kong
11 countries and regions: Hong Kong, Brunei,
Thailand, Malaysia, Canada, Indonesia, Macao,
Singapore, Australia, Cambodia and Dubai
Brand 1
Singapore
5 countries and regions: Australia, Hong Kong,
Macao, Malaysia, and Singapore
Brand 2
Hong Kong
One country and region: Hong Kong
Brand 6
Hong Kong
One country and region: Hong Kong
Our major competitor, Brand 1, had in total 290 retail stores as in 2011 in the five countries/
regions it covered. Although its retail network in Southeast Asia is stronger than that of the Group,
the Group distinguishes itself from Brand 1 mainly in terms of the branding and product offering: (i)
“Brand 1” is a Malaysian brand while “Tong Ren Tang” is a Chinese brand; and (ii) Brand 1 primarily
offers Healthcare Products including health food, dietary supplements, beverages, packaged tonic
soups, and personal cares products while the Group primarily offers Chinese Medicines and Chinese
herbs. Brand 2 and Brand 6 both have strong retail networks in Hong Kong, but no coverage in other
overseas country/region, and we do not regard them as our major competitor due their geographic
limitation.
Note:
1.
Asia includes: Abkhazia, Afghanistan, Armenia, Azerbaijan, Bahrain, Bangladesh, Bhutan, Brunei, Cambodia, China,
Cyprus, East Timor, Georgia, Hong Kong (China), India, Indonesia, Iran, Iraq, Israel, Jordan, Japan, Kazakhstan,
Kyrgyzstan, Kuwait, Laos, Lebanon, Macao (China), Malaysia, Maldives, Mongolia, Myanmar, Nepal, North Korea,
Oman, Pakistan, Palestine, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Sri Lanka, Syria, Taiwan (China),
Tajikistan, Thailand, Turkey, Turkmenistan, United Arab Emirates, Uzbekistan, Vietnam and Yemen.
- 76 -
Industry overview
Africa includes: Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Canary Islands, Cape Verde,
Central African Republic, Ceuta, Chad, Comoros, Cote d’Ivoire, Democratic Republic of the Congo, Djibouti, Egypt,
Equatorial Guinea, Eritrea, Ethiopia, Gabonese, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Libya,
Madagascar, Madere, Malawi, Mali, Mauritania, Mauritius, Mayotte, Melilla, Morocco, Mozambique, Namibia, Niger,
Nigeria, Republic of the Congo, Reunion, Rwanda, Western Sahara, Saint Helena, Sao Tome and Principe, Senegal,
Seychelles, Sierra Leone, Somali, Republic of South Africa, Sudan, Swaziland, Tanzania, Togolese, Tunisia, Uganda,
Zambia, Zimbabwe.
Europe includes: Albania, Andorra, Austria, Belarus, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg,
Macedonia, Malta, Moldova, Monaco, The Republic of Montenegro, Netherlands, Norway, Poland, Portugal, Republic
of Bosnia and Herzegovina, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland,
Ukraine, United Kingdom and Vatican.
Latin America includes: Antigua, Argentina, Barbuda, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Columbia, Costa
Rica, Cuba, Dominica, Ecuador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama,
Paraguay, Peru, St Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Salvador, Surinam, The Dominican
Republic, Trinidad and Tobago, Uruguay and Venezuela.
North America includes: Canada and United Sates.
Oceania includes: Australia, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, New Zealand, Palau, Papua New Guinea,
Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.
- 77 -